5 Overlooked Tax Benefits for Millennials
December 21, 2017
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As a recent graduate, making ends meet can be tough. Between rent, student loan payments, and utilities, there’s not much left over for anything else. The idea of owing the government even more during tax season can be terrifying.
However, tax time can be a big benefit to millennials. In fact, you could end up with a good chunk of change back in your pocket. According to the Internal Revenue Service (IRS), 83 percent of tax returns result in a refund. Even better, the average refund is $3,120. That money can go a long way to pay off debt or build up an emergency fund.
To get the maximum refund you deserve, it’s important to know about what credits and deductions you may be eligible for:
1. American Opportunity Tax Credit
One of the most valuable tax breaks can help you pay for school if you or a dependent is pursuing a degree. Under the American Opportunity Tax Credit (AOTC), you could reduce your tax bill by as much as $2,500.
The value of the credit is equal to how much you spent on qualified educational expenses, such as tuition, course materials and school fees. Other education-related expenses, such as health insurance or transportation to school, do not qualify for the credit.
AOTC is refundable. That means that if the credit reduces your tax bill to $0, you can receive a portion of the remaining credit value as part of your tax refund.
There are income restrictions for AOTC. To claim the full value of the credit, you must make under $80,000 if you file a return on your own, or $160,000 if you file a joint return. If you make under $90,000, or $180,000 if you file jointly, you can claim a reduced credit. Those whose incomes exceed those amounts are ineligible for AOTC.
2. Child and Dependent Care Credit
If you have children or another dependent, you know that quality care can be extremely expensive. But, you might be able to get a credit for what you spent on daycare or babysitters if those services helped you go to work through the Child and Dependent Care Credit. You can deduct up to $3,000 for the first dependent and up to $6,000 if you have two or more. While the credit won’t make daycare any more affordable, it can help reduce your tax bill.
3. Earned Income Tax Credit
The Earned Income Tax Credit (EITC), is credited with lifting over 9.4 million people out of poverty. Depending on your income and the number of children you have, you could receive over $6,000 as a tax credit.
Like AOTC, the EITC is a refundable tax credit, which means it can help you get a larger tax refund. It could be a big windfall you can use to pay for necessary bills, medical procedures or car repairs you’ve put off due to cost.
To qualify, you must have earned income from working for someone else or by running a business. Intended for low- to moderate-income families, there are income restrictions to claim the credit.
4. Mortgage Interest Deduction
If you purchased a home or made payments toward a mortgage during the tax year, you may be able to deduct the interest payments you made from your tax bill. In fact, you could deduct all of the interest you paid over the year, up to $1 million. The mortgage interest deduction can dramatically reduce your taxable income, lowering how much you owe at tax time.
5. Student Loan Interest Tax Deduction
While student loans can be painful to manage, there is one upside: you can deduct the interest you paid on your loans on your taxes. You can deduct $2,500, or the full value of your interest payments, whichever is less.
Eligible interest payments include any extra payments you might have made, not just the minimum due each month.
Qualifying for Tax Benefits
Tax season can be stressful, but depending on your finances, you could end up with a big refund check. Being aware of the different credits and deductions available can ensure you get every dollar you deserve.
If you don’t know where to start when it comes to preparing your taxes and claiming credits, online tax services can help you navigate through the process.